UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission File Number 0-27522
PRESTIGE BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1785128
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
710 Old Clairton Road
Pleasant Hills, Pennsylvania 15236
(Address of principal executive office) (Zip Code)
(412) 655-1190
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 14, 2001 there
were 1,059,371 shares of the registrant's common stock outstanding, par value
$1.00 per share.
PRESTIGE BANCORP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets of Prestige Bancorp, Inc. as of
September 30, 2001 (unaudited) and December 31, 2000 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended September 30, 2001 and 2000 (unaudited) 2
Consolidated Statements of Income of Prestige Bancorp, Inc. for the nine
months ended September 30, 2001 and 2000 (unaudited) 3
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the nine months ended September 30, 2001 and 2000 (unaudited) 4
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the nine
months ended September 30, 2001 and 2000 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security-Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
---- ----
ASSETS (Unaudited)
Cash and due from banks $ 1,133,542 $ 1,223,252
Interest-bearing deposits with banks 14,474,723 4,647,771
Investment securities:
Available for sale 18,214,795 8,911,314
Held to maturity (market value $11,192,696 and
$21,924,761 respectively) 11,032,706 22,243,491
Net loans 142,913,187 153,416,598
Federal Home Loan Bank stock, at cost 2,790,000 3,689,900
Premises and equipment, net 2,180,857 2,343,491
Accrued interest receivable 1,081,754 1,301,026
Deferred tax asset 2,302,483 2,411,016
Other assets 1,720,906 1,587,097
------------- -------------
Total assets $ 197,844,953 $ 201,774,956
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest-bearing deposits $ 7,605,203 $ 8,023,201
Interest-bearing deposits 121,107,311 113,770,089
------------- -------------
Total deposits 128,712,514 121,793,290
Federal Home Loan Bank advances 55,800,000 66,300,000
Advance payments by borrowers for taxes and insurance 302,982 884,319
Accrued interest payable 332,327 648,145
Other liabilities 616,849 599,270
------------- -------------
Total liabilities 185,764,672 190,225,024
------------- -------------
Stockholders' Equity:
Preferred stock, $1.00 par value;
5,000,000 shares authorized, none issued -- --
Common stock, $1.00 par value; 10,000,000 shares authorized,
1,301,511 shares issued at September 30, 2001;
1,162,313 shares issued at December 31, 2000 1,301,511 1,162,313
Treasury stock at cost: 242,140 and 216,197 shares at September 30, 2001
and December 31, 2000, respectively (2,699,348) (2,699,348)
Additional paid-in-capital 12,777,134 11,588,778
Unearned ESOP shares: 79,088 and 74,341 shares at September 30, 2001
and December 31, 2000, respectively (595,330) (615,670)
Retained earnings - substantially restricted 1,391,849 2,377,690
Accumulated other comprehensive loss (95,535) (263,831)
------------- -------------
Total stockholders' equity 12,080,281 11,549,932
------------- -------------
Total liabilities and stockholders' equity $ 197,844,953 $ 201,774,956
============= =============
The accompanying notes are an integral part of these financial statements.
1
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
-------------
2001 2000
---- ----
Interest income:
Interest and fees on loans $ 2,606,438 $ 3,186,168
Interest on mortgage-backed securities 159,446 158,983
Interest and dividends on other investment securities 311,319 432,624
Interest on deposits in other financial institutions 69,175 15,059
----------- -----------
Total interest income 3,146,378 3,792,834
----------- -----------
Interest expense:
Interest on deposits 1,209,373 1,246,693
Advances from Federal Home Loan Bank 878,159 1,087,946
----------- -----------
Total interest expense 2,087,532 2,334,639
----------- -----------
Net interest income 1,058,846 1,458,195
Provision for loan losses 30,000 1,898,500
----------- -----------
Net interest income (loss) after provision for loan losses 1,028,846 (440,305)
----------- -----------
Other income:
Fees and service charges 214,214 237,306
Net gain on sale of investments 2,089 18,362
Loss on sale of assets (7,787) --
Loss on sale of foreclosed real estate (1,205) --
Other income, net 3,860 4,161
----------- -----------
Total other income 211,171 259,829
----------- -----------
Other expenses:
Salaries and employee benefits 603,599 623,152
Premises and occupancy costs 128,707 152,457
Federal deposit insurance premiums 15,600 6,263
Data processing costs 71,124 67,714
Advertising costs 30,945 22,557
Transaction processing costs 79,375 89,891
ATM transaction fees 42,947 47,605
Legal and professional expenses 123,583 118,374
Other expenses 131,013 130,292
----------- -----------
Total other expenses 1,226,893 1,258,305
----------- -----------
Income (loss) before income tax expense 13,124 (1,438,781)
Income tax expense (benefit) 6,019 (562,825)
----------- -----------
Net income (loss) $ 7,105 $ (875,956)
=========== ===========
Basic earnings (loss) per share:
Net income (loss) $ 0.01 $ (0.90)
Weighted average number of common shares outstanding 979,345 974,184
Diluted earnings (loss) per share:
Net income (loss) $ 0.01 $ (0.90)
Weighted average number of common shares outstanding 979,364 974,184
The accompanying notes are an integral part of these financial statements.
2
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended
September 30,
-------------
2001 2000
---- ----
Interest income:
Interest and fees on loans $ 8,310,657 $ 9,284,200
Interest on mortgage-backed securities 447,246 509,238
Interest and dividends on other investment securities 1,018,093 1,304,756
Interest on deposits in other financial institutions 256,681 67,586
------------ ------------
Total interest income 10,032,677 11,165,780
------------ ------------
Interest expense:
Interest on deposits 3,797,043 3,632,566
Advances from Federal Home Loan Bank 2,731,093 3,000,049
------------ ------------
Total interest expense 6,528,136 6,632,615
------------ ------------
Net interest income 3,504,541 4,533,165
Provision for loan losses 210,000 2,440,500
------------ ------------
Net interest income after provision for loan losses 3,294,541 2,092,665
------------ ------------
Other income:
Fees and service charges 628,236 678,058
Net gain on sale of investments 32,624 10,398
(Loss) gain on sale of assets (7,787) 2,660
(Loss) gain on sale of foreclosed real estate (1,205) 2,488
Other income, net 11,499 12,585
------------ ------------
Total other income 663,367 706,189
------------ ------------
Other expenses:
Salaries and employee benefits 1,832,809 1,892,081
Gain on curtailment of pension plan (478,804) --
Premises and occupancy costs 403,758 454,905
Federal deposit insurance premiums 45,544 18,701
Data processing costs 214,095 205,846
Advertising costs 94,863 106,560
Transaction processing costs 254,450 263,069
ATM transaction fees 124,095 129,267
Legal and professional expenses 492,625 275,459
Other expenses 416,660 395,758
------------ ------------
Total other expenses 3,400,095 3,741,646
------------ ------------
Income (loss) before income tax expense 557,813 (942,792)
Income tax expense (benefit) 218,617 (374,427)
------------ ------------
Net income (loss) $ 339,196 $ (568,365)
============ ============
Basic earnings (loss) per share:
Net income (loss) $ 0.35 $ (0.58)
Weighted average number of common shares outstanding 977,972 987,706
Diluted earnings (loss) per share:
Net income (loss) $ 0.35 $ (0.58)
Weighted average number of common shares outstanding 977,982 987,706
The accompanying notes are an integral part of these financial statements.
3
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
Common
Stock Additional
Comprehensive $1.00 par Treasury Paid-in
Income value Stock Capital
------ ----- ----- -------
BALANCE, December 31, 2000 $ 1,162,313 $(2,699,348) $ 11,588,778
Allocation of 4,174 ESOP shares -- -- 5,173
Net income $ 339,196 -- -- --
Net unrealized gains on available for sale
securities, net of tax of $99,365 149,048 -- -- --
Reclassification adjustment for gains
realized in net income net of tax of
$13,376 19,248 -- -- --
Stock dividend declared:
Common stock (12% per share) 139,198 -- 1,183,183
Cash in lieu of stock -- -- --
-----------
Comprehensive income $ 507,492
=========== ----------- ----------- ------------
BALANCE, September 30, 2001 $ 1,301,511 $(2,699,348) $12,777,134
=========== =========== ===========
BALANCE, December 31, 1999 $ 1,162,313 $(2,246,618) $ 11,581,741
Allocation of 3,898 ESOP shares -- -- 8,029
Net loss $ (568,365) -- -- --
Net unrealized gains on available for sale
securities, net of tax of $60,031 90,046 -- -- --
Reclassification adjustment for gains
realized in net income net of tax of
$3,667 6,731 -- -- --
Cash dividends declared:
Common stock ($.19 per share) -- -- --
Treasury stock purchases, 49,110 shares -- (452,730) --
-----------
Comprehensive loss $ (471,588)
=========== ----------- ----------- ------------
BALANCE, September 30, 2000 $ 1,162,313 $(2,699,348) $ 11,589,770
=========== =========== ===========
Accumulated
Other
Unearned Retained Comprehensive
ESOP Shares Earnings (Loss) Income Total
----------- -------- ------------- -----
BALANCE, December 31, 2000 $ (615,670) $ 2,377,690 $ (263,831) $ 11,549,932
Allocation of 4,174 ESOP shares 20,340 -- -- 25,513
Net income -- 339,196 -- 339,196
Net unrealized gains on available for sale
securities, net of tax of $99,365 -- -- 149,048 149,048
Reclassification adjustment for gains
realized in net income net of tax of
$13,376 -- -- 19,248 19,248
Stock dividend declared:
Common stock (12% per share) -- (1,322,381) -- --
Cash in lieu of stock -- (2,656) -- (2,656)
Comprehensive income
----------- ----------- ------------ ------------
BALANCE, September 30, 2001 $ (595,330) $ 1,391,849 $ (95,535) $ 12,080,281
=========== =========== ============ ============
BALANCE, December 31, 1999 $ (654,310) $ 5,543,671 $ (433,508) $ 14,953,289
Allocation of 3,898 ESOP shares 18,990 -- -- 27,019
Net loss -- (568,365) -- (568,365)
Net unrealized gains on available for sale
securities, net of tax of $60,031 -- -- 90,046 90,046
Reclassification adjustment for gains
realized in net income net of tax of
$3,667 -- -- 6,731 6,731
Cash dividends declared:
Common stock ($.19 per share) -- (201,821) -- (201,821)
Treasury stock purchases, 49,110 shares -- -- -- (452,730)
Comprehensive loss
----------- ----------- ------------ ------------
BALANCE, September 30, 2000 $ (635,320) $ 4,773,485 $ (336,731) $ 13,854,169
=========== =========== ============ ============
The accompanying notes are an integral part of these statements.
4
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-------------
2001 2000
---- ----
Operating activities:
Net income (loss) $ 339,196 $ (568,365)
------------ -------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation of premises and equipment 201,257 244,819
Amortization of premiums and discounts, net (13,644) (2,550)
Non cash compensation expense related to MRP Plan 58,331 99,369
Non cash compensation expense related to ESOP benefit 43,693 46,549
Gain on sale of equity securities (29,883) (21,544)
Gain on calls of held to maturity securities (2,741) --
Loss on sale of available for sale investment securities -- 8,877
Loss on sale of available for sale mortgage-backed securities -- 2,270
Provision for loan losses 210,000 2,440,500
Decrease in other liabilities (601) (119,517)
(Decrease) increase in accrued interest payable (315,818) 234,429
Decrease in income taxes payable -- (91,648)
Increase in deferred income taxes (3,664) (877,582)
Decrease (increase) in accrued interest receivable 219,272 (235,460)
Gain on curtailment of pension plan (478,804) --
Decrease (increase) in other assets 286,664 (73,501)
------------ -------------
Total adjustments 174,062 1,655,011
------------ -------------
Net cash provided by operating activities 513,258 1,086,646
------------ -------------
Investing activities:
Loan originations (22,607,125) (44,464,165)
Principal payments on loans 32,900,536 32,839,123
Principal payments on mortgage-backed securities available for 412,536 388,190
sale
Principal payments on mortgage-backed securities held to maturity 1,019,923 786,931
Principal payments on investment securities held to maturity 190,431 56,737
Proceeds from calls of held to maturity investment securities 10,000,000 --
Proceeds from calls of available for sale investment securities 3,500,000 --
Proceeds from sale of available for sale investment securities -- 991,126
Proceeds from sale of available for sale mortgage-backed -- 593,798
securities
Proceeds from sale of equity securities 260,893 161,799
Purchases of available for sale mortgage-backed securities (3,000,300) --
Purchases of available for sale investment securities (10,149,417) (26,619)
Purchases of premises and equipment (38,623) (106,848)
Redemption of Federal Home Loan Bank stock 899,900 --
------------ -------------
Net cash provided (used) by investing activities 13,388,754 (8,779,928)
------------ -------------
Financing activities:
Net change in advance payments by borrowers for taxes and (581,337) (591,541)
insurance
Purchases of MRP shares -- (1,850)
Proceeds from Federal Home Loan Bank advances -- 147,850,000
Payments on Federal Home Loan Bank advances (10,500,000) (140,250,000)
Net increase in Money Market, NOW, and Passbook savings accounts 4,025,371 2,412,689
Net increase in certificate accounts 2,893,853 1,343,467
Cash paid in lieu of stock dividend (2,657) --
Purchases of treasury stock -- (452,730)
Common stock cash dividends paid -- (201,821)
------------ -------------
Net cash (used) provided by financing activities (4,164,770) 10,108,214
------------ -------------
Net increase in cash and cash equivalents 9,737,242 2,414,932
Cash and cash equivalents at beginning of period 5,871,023 5,198,313
------------ -------------
Cash and cash equivalents at end of period $ 15,608,265 $ 7,613,245
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 21,400 $ 590,825
Cash paid during the period for interest on deposits and 6,843,953 6,398,186
borrowings
Supplemental schedule of noncash investing activity:
Loans transferred to real estate owned $ -- $ 179,149
The accompanying notes are an integral part of these financial statements.
5
PRESTIGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
1. BASIS OF ORGANIZATION:
On February 14, 1996, the Board of Directors of Prestige Bank, F.S.B. (the Bank)
adopted a Plan of Conversion (the Plan) from a federally chartered mutual
savings bank to a federally chartered stock savings bank and the issuance of its
stock to Prestige Bancorp, Inc., (the Corporation), a Pennsylvania corporation.
The Corporation sold 963,023 shares of its common stock (including 77,041 shares
to its newly formed Employee Stock Ownership Trust (the ESOP)), at $10.00 per
share. Simultaneously there was a corresponding exchange of all of the Bank's
stock for approximately 50% of the net offering proceeds. The remaining portion
of the net proceeds was retained by the Corporation net of $770,410, which was
loaned to the ESOP for its purchase. The conversion and public offering was
completed on June 27, 1996 with net proceeds from the offering, net of the ESOP
loan, totaling $8,188,394, after offering expenses.
2. BASIS OF PRESENTATION:
The following unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to those rules and
regulations, although the Corporation believes that the disclosures made are
adequate to make the information presented not misleading. However, such interim
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operations for the periods
presented. The results of operations for the three and nine month periods ended
September 30, 2001, are not necessarily indicative of the results to be expected
for the year ending December 31, 2001.
The unaudited financial statements and notes hereto should be read in
conjunction with the audited financial statements and notes thereto for the year
ended December 31, 2000, contained in the Corporation's Annual Report and Form
10-K.
Earnings Per Common Share
The Corporation follows Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." Under SFAS No. 128, earnings per share are classified
as basic earnings per share and diluted earnings per share. Basic earnings per
share includes only the weighted average common shares outstanding. Diluted
earnings per share includes the weighted average common shares outstanding and
any dilutive common stock equivalent shares in the calculation. Treasury shares
are treated as retired for earnings per share purposes.
6
The following tables reflect the calculation of earnings per share under SFAS
No. 128.
Three Months Ended
------------------
September 30, 2001 September 30, 2000
------------------ ------------------
Basic earnings (loss) per share:
Net income (loss) $ 7,105 $(875,956)
Average shares outstanding 979,345 974,184
Earnings (loss) per share $ 0.01 $ (0.90)
Diluted earnings (loss) per share:
Net income (loss) $ 7,105 $(875,956)
Average shares outstanding 979,345 974,184
Stock options 19 --
-------- ---------
Diluted average shares outstanding 979,364 974,184
Earnings (loss) per share $ 0.01 $ (0.90)
For the three months ended September 30, 2001 and 2000, options to purchase
96,856 and 124,349 shares of common stock, respectively, were outstanding but
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
Corporation's common shares for the period.
Nine Months Ended
-----------------
September 30, 2001 September 30, 2000
------------------ ------------------
Basic earnings (loss) per share:
Net income (loss) $339,196 $(568,365)
Average shares outstanding 977,972 987,706
Earnings (loss) per share $ 0.35 $ (0.58)
Diluted earnings (loss) per share:
Net income (loss) $339,196 $(568,365)
Average shares outstanding 977,972 987,706
Stock options 10 --
-------- ---------
Diluted average shares outstanding 977,982 987,706
Earnings (loss) per share $ 0.35 $ (0.58)
For the nine months ended September 30, 2001 and 2000, options to purchase
95,896 and 124,349 shares of common stock, respectively, were outstanding but
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
Corporation's common shares for the period.
On May 16, 2001, the Board of Directors declared a stock dividend of 12% to
shareholders of record of June 1, 2001, which was paid on June 15, 2001. All per
share data have been restated to reflect the stock dividend.
Comprehensive Income
The Corporation follows SFAS No. 130, "Reporting Comprehensive Income." This
accounting standard requires the reporting of all changes in the equity of an
enterprise that result from recognized transactions and other economic events of
the period other than transactions with owners in their capacity as owners.
Prior to the issuance of this standard, some of those changes in equity were
displayed in the income statement, while others were included directly in
balances within a separate component of equity in the balance sheet.
7
Office of Thrift Supervision
The Corporation announced on September 25, 2000 that the Savings Bank entered
into a Supervisory Agreement with the Office of Thrift Supervision (the "OTS").
This Supervisory Agreement formalized the understandings of the OTS and the Bank
pursuant to an informal directive issued by the OTS to the Bank on May 17, 2000.
In conjunction with a routine regulatory examination of the Bank by the OTS, the
OTS requested the Bank to enter into the Supervisory Agreement. The Supervisory
Agreement was signed on September 20, 2000, (the "Effective Date") and, among
other things, places restrictions on the Bank's growth. The Bank may seek
modification of this limitation on growth by submission of a written request to
the Regional Director of the OTS ("Regional Director") and by obtaining the
prior written approval of the Regional Director. Under the Supervisory
Agreement, the Bank may not increase its assets in an amount exceeding net
interest credited on deposit liabilities (or earnings credited on share
accounts) during any calendar quarter, without prior written approval of the
Regional Director. Additionally, the Supervisory Agreement requires the Bank or
its Board of Directors to review and revise various policies including 1)
interest rate risk management, 2) strategic planning to direct the operations
and affairs of the Bank and in managing and reducing the interest rate risk of
the Bank, 3) investment and underwriting policies, 4) transactions with the
affiliates of the Bank, and 5) internal loan and asset classifications policies.
The Supervisory Agreement continues the restriction imposed on the Bank by the
directive not to extend loans for a business purpose except for those business
loans which the Bank was committed to extend on or before May 17, 2000 or which
were loans in process. This restriction on the extension of new loans for a
business purpose also extends to renewals of business loans with revolving
credit or balloon loan features at maturity. The Bank may request that the
Regional Director waive this limitation on the extension of an individual
commercial loan to a customer, including any revised terms or renewal of a
business loan. The restrictions on the Bank's operations were immediately
effective and the Supervisory Agreement will remain in place until terminated by
the OTS.
The Corporation has worked closely with the OTS to implement the Supervisory
Agreement and believes it has materially complied with the Agreement to date.
8
3. INVESTMENT SECURITIES:
The cost and market values of investment securities are summarized as follows:
Investment securities available for sale:
September 30, 2001
------------------
Amortized Market
Cost Value
---- -----
U.S. government and government
agency obligations:
Due after one and within five years $ 500,000 $ 514,690
Corporate Debentures 494,222 433,560
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after 10 years 1,526,851 1,564,719
Government National Mortgage Association
(GNMA) certificates:
Due after 10 years 3,003,591 3,015,362
Federal National Mortgage Association
(FNMA) certificates:
Due after 10 years 1,088,732 1,113,893
Mutual fund investment 10,737,253 10,736,409
Common stock portfolio 1,023,372 836,162
----------- -----------
$18,374,021 $18,214,795
=========== ===========
Investment securities held to maturity:
September 30, 2001
------------------
Amortized Market
Cost Value
---- -----
U.S. government and government
agency obligations:
Due after five and within ten years $ 998,229 $ 1,003,710
Due after 10 years 4,615,687 4,630,606
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after five and within ten years 1,856,355 1,947,097
Due after 10 years 752,875 745,864
Government National Mortgage Association
(GNMA) certificates:
Due after 10 years 1,262,205 1,289,403
Federal National Mortgage Association
(FNMA) certificates:
Due after 10 years 1,547,355 1,576,016
----------- -----------
$11,032,706 $11,192,696
=========== ===========
9
4. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
September 30,
2001
----
Real estate loans:
1-4 family $ 101,898,639
Construction 1,359,888
Commercial real estate 11,528,348
-------------
114,786,875
Less- Undisbursed loan proceeds 396,367
-------------
114,390,508
Commercial business loans 12,787,569
Consumer loans:
Home equity 12,706,957
Student 2,588,888
Automobile 2,087,856
Collateral 663,853
Credit cards 440,426
Personal unsecured/other 535,648
-------------
19,023,628
-------------
146,201,705
Less- Allowance for loan losses 3,339,047
Deferred loan (costs)/fees (50,529)
-------------
$ 142,913,187
=============
5. ALLOWANCE FOR LOAN LOSSES:
Activity with respect to the allowance for loan losses is summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Balance at beginning of period $ 3,307,846 $ 1,494,908 $ 3,387,779 $ 982,588
Provision for loan losses 30,000 1,898,500 210,000 2,440,500
Charge-offs (25,041) (848,151) (328,905) (878,186)
Recoveries 26,242 -- 70,173 355
----------- ----------- ----------- -----------
Balance at end of period $ 3,339,047 $ 2,545,257 $ 3,339,047 $ 2,545,257
=========== =========== =========== ===========
10
6. DEPOSITS:
Scheduled maturities of the Bank's certificate accounts as of September 30, 2001
are as follows (amounts approximate):
October 1, 2001 to September 30, 2002 $38,273,201
October 1, 2002 to September 30, 2003 12,639,797
October 1, 2003 to September 30, 2004 4,878,826
October 1, 2004 to September 30, 2005 4,101,882
October 1, 2005 and thereafter 3,015,226
-----------
TOTAL $62,908,932
===========
Certificates of $100,000 or more $10,953,688
===========
7. INCOME TAXES:
The income tax expense (benefit) was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Federal $ 3,723 $(461,327) $ 174,773 $(307,100)
State 2,296 (101,498) 43,844 (67,327)
--------- --------- --------- ---------
$ 6,019 $(562,825) $ 218,617 $(374,427)
========= ========= ========= =========
8. RELATED PARTY TRANSACTIONS:
Certain directors and executive officers of the Bank, including their immediate
families and companies in which they are principal owners, are loan customers of
the Bank. In management's opinion, such loans are made in the normal course of
business and were granted on substantially the same terms and conditions as
loans to other individuals and businesses of comparable creditworthiness at the
time. Total loans to these persons at September 30, 2001, and December 31, 2000,
amounted to $218,436 and $894,683, respectively.
9. CAPITAL STOCK:
On April 23, 1997, at the annual stockholders meeting, the Board of Directors
and shareholders formally approved the Corporation's Stock Option Plan (the
Option Plan) and Management Recognition and Retention Plan and Trust (the MRP
Plan; the Option Plan and the MRP Plan herein are referred to as the Plans) as
fully described in the Corporation's proxy statement dated March 31, 1997. In
connection with the MRP Plan, the Corporation incurred compensation expense of
approximately $6,000 and $58,000 during the three and nine months ended
September 30, 2001, respectively, compared to $36,000 and $99,000 for the
comparable periods of 2000.
The aforementioned approval of the Option Plan made 130,239 options available
for grant to directors, employees and others who perform substantial services
for the Corporation. As of September 30, 2001, forfeited options on 33,610
shares had been returned to the Plan, and the Corporation had granted 130,486
options. The options are exercisable one year from the grant date and vest in
equal installments over a period of five years. As of September 30, 2001, there
had been 568 options exercised. The maximum term of any option granted under the
Plan cannot exceed 10 years.
11
On May 16, 2001, the Board of Directors declared a stock dividend of 12% to
shareholders of record of June 1, 2001 payable on June 15, 2001. All option data
above have been restated to reflect the stock dividends.
10. RETAINED EARNINGS AND REGULATORY CAPITAL:
The Savings Bank's actual capital amounts and ratios are presented below in the
following table. There was no deduction from capital for interest-rate risk
(amounts in thousands).
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total Capital (to Risk
Weighted Assets):
As of
September 30, 2001 $12,208 11.91% > $8,197 > 8.0% > $10,247 > 10.0%
- - - -
Tier 1 Capital (to Risk
Weighted Assets):
As of
September 30, 2001 $10,902 10.64% > $4,099 > 4.0% > $6,148 > 6.0%
- - - -
Tier 1 Capital (to
Average Assets):
As of
September 30, 2001 $10,902 5.48% > $7,964 > 4.0% > $9,955 > 5.0%
- - - -
11. COMMITMENTS AND CONTINGENT LIABILITIES:
The Corporation incurs off-balance sheet risks in the normal course of business
in order to meet the financing needs of its customers. These risks derive from
commitments to extend or receive credit. Such commitments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
financial statements.
Commitments to extend credit are obligations to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
Commitments generally have fixed expiration dates or other termination clauses.
A portion of the commitments is not expected to be drawn upon; thus, the total
commitment amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to these commitments to extend credit is represented by their contractual
amounts. The Bank uses the same credit and collateral policies in making
commitments as for all other lending. The Bank has outstanding various
commitments to extend credit approximating $11.9 million as of September 30,
2001. In the opinion of management, the funding of the credit commitments will
not have a material adverse effect on the Bank's financial position or results
of operations.
12
Additionally, the Bank is also subject to asserted and unasserted potential
claims encountered in the normal course of business. In the opinion of
management and legal counsel, the resolution of these claims will not have a
material adverse effect on the Bank's financial position or results of
operations.
12. FUTURE ACCOUNTING STANDARDS:
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". This
Statement addresses financial accounting and reporting for business combinations
and supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations", and FASB Statement No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." All business combinations in the scope
of this Statement are to be accounted for using one method, the purchase method.
The provisions of this Statement apply to all business combinations initiated
after June 30, 2001. This Statement also applies to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later.
The FASB has also issued SFAS No. 142, "Goodwill and Other Intangible Assets".
This Statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." This statement addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements upon
their acquisition. This Statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. The provisions of this Statement are
required to be applied starting with fiscal years beginning after December 15,
2001 except for goodwill and intangible assets acquired after June 30, 2001
which will be subject immediately to the nonamortization and amortization
provisions of this Statement.
The FASB has also issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The provisions of this Statement are required
to be applied starting with fiscal years beginning after June 15, 2002.
The FASB has also issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets". This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The provisions of this Statement are
required to be applied starting with fiscal years beginning after December 15,
2001.
The impact and adoption of these standards is not expected to materially affect
the Corporation's financial condition or results of operations.
13
13. SUBSEQUENT EVENTS
SALE OF WASHINGTON, PENNSYLVANIA BRANCH
The Bank completed the sale of its Washington in-store branch office to
Northwest Savings Bank in October 2001, subject to final adjustments. The office
was located within the Shop 'n Save supermarket at 125 West Beau Street in
Washington, Pennsylvania. Northwest Savings Bank retained the employees of this
office to provide continuity of customer service. The sale included $4.5 million
in deposits, as well as the fixed assets at such branch location. Prestige Bank
expects to record approximately $60,000 in pre-tax gains when the transaction
closes in the fourth quarter 2001. All deposits of such branch will continue to
be FDIC insured subject to FDIC rules and regulations.
COMMERCIAL LOAN SALE
Subsequent to the close of the third quarter 2001, the Bank completed a packaged
commercial loan sale of approximately forty-nine loans to a third party. The
total face amount of the loans was $6.35 million of which $2.0 million had been
charged-off prior to the sale. This sale will result in a $1.9 million reduction
of the existing allowance for loan loss at September 30, 2001. Net proceeds of
the sale were $2.5 million. Non-performing assets were $6.9 million but would
have been $4.3 million at September 30, 2001 had the sale taken place prior to
September 30, 2001. For additional non-performing asset information, see the
"Financial Condition" section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUPERVISION AND REGULATION
The Corporation announced on September 25, 2000 that the Savings Bank
entered into a Supervisory Agreement with the Office of Thrift Supervision (the
"OTS"). This Supervisory Agreement formalized the understandings of the OTS and
the Bank pursuant to an informal directive issued by the OTS to the Bank on May
17, 2000.
In conjunction with a routine regulatory examination of the Bank by the OTS,
the OTS requested the Bank to enter into the Supervisory Agreement. The
Supervisory Agreement was signed on September 20, 2000, (the "Effective Date")
and, among other things, places restrictions on the Bank's growth. The Bank may
seek modification of this limitation on growth by submission of a written
request to the Regional Director of the OTS ("Regional Director") and by
obtaining the prior written approval of the Regional Director. Under the
Supervisory Agreement, the Bank may not increase its assets in an amount
exceeding net interest credited on deposit liabilities (or earnings credited on
share accounts) during any calendar quarter, without prior written approval of
the Regional Director. Additionally, the Supervisory Agreement requires the Bank
or its Board of Directors to review and revise various policies including 1)
interest rate risk management, 2) strategic planning to direct the operations
and affairs of the Bank and in managing and reducing the interest rate risk of
the Bank, 3) investment and underwriting policies, 4) transactions with the
affiliates of the Bank, and 5) internal loan and asset classifications policies.
The Supervisory Agreement continues the restriction imposed on the Bank by the
directive not to extend loans for a business purpose except for those business
loans which the Bank was committed to extend on or before May 17, 2000 or which
were loans in process. This restriction on the extension of new loans for a
business purpose also extends to renewals of business loans with revolving
credit or balloon loan features at maturity. The Bank may request that the
Regional Director waive this limitation on the extension of an individual
commercial loan to a customer, including any revised terms or renewal of a
business loan. The restrictions on the Bank's operations were immediately
effective and the Supervisory Agreement will remain in place until terminated by
the OTS.
The Corporation has worked closely with the OTS to implement the Supervisory
Agreement and believes it has materially complied with the Agreement to date.
FINANCIAL CONDITION
Assets held directly by the Corporation include all of the outstanding
capital stock of the Savings Bank, a loan receivable from the Prestige Bancorp
Employee Stock Ownership Trust (the "ESOP"), one loan to a former director,
deposits maintained at the Savings Bank, common stock of mostly savings
associations or savings and loan holding companies and other assets
(collectively the "Directly Held Assets"). Each stock ownership interest in the
unrelated savings associations or savings and loan holding companies amounts to
less than a 1.25% interest in such entities. As of September 30, 2001, the
Corporation had outstanding borrowings of $325,000 from the Savings Bank to
support cash levels. The loan is adequately secured in accordance with
applicable law.
The following discussion of the financial condition and activities of the
Corporation should be read as the consolidated activities of the Corporation and
the Savings Bank. Unless the following discussion specifically identifies an
activity, event or condition as relating to the Directly Held Assets, it is
assumed that such activity, event or condition occurred as a result of a direct
action of the Savings Bank and an indirect action of the Corporation.
15
At September 30, 2001, the Corporation's total assets amounted to $197.8
million compared with $201.8 million at December 31, 2000. Total net loans and
investment securities decreased $10.5 million and $1.9 million, respectively,
while cash and cash equivalents increased $9.7 million. This increase in cash
and cash equivalents of $9.7 million were primarily attributable to an increase
in deposits of $6.9 million and a decrease in net loans of $10.5 million. This
was partially offset by a decrease in Federal Home Loan Bank ("FHLB") advances
of $10.5 million. The $1.9 million or 6.1% decrease in investment securities was
primarily due to $13.5 million in investments that were called and $1.4 million
in principal payments on mortgage-backed securities, which was partially offset
by $13.1 million in available for sale investment and mortgage-backed security
purchases. The net loan decrease of $10.5 million or 6.8% was attributed to
decreases in commercial business and commercial real estate loans of $7.8
million or 24.3% and one-to-four family real estate loans of $1.4 million or
1.4%. Total stockholders' equity amounted to $12.1 million or 6.11% of total
assets at September 30, 2001, compared to equity of $11.6 million or 5.72% of
total assets at December 31, 2000. The $530,000 increase in stockholders' equity
was primarily attributable to net income of $339,000 for the nine months ended
September 30, 2001. During 2000, the Board of Directors suspended its cash
dividend to preserve capital due to net losses recognized by the Corporation.
The Board of Directors of Prestige Bancorp will review paying cash dividends on
a quarterly basis.
The Corporation's nonperforming assets increased $983,000 to $6.9 million at
September 30, 2001, compared to $5.9 million at December 31, 2000. The increase
was primarily due to a rise in nonperforming commercial business loans from $2.2
million at December 31, 2000 compared to $3.2 million at September 30, 2001. At
September 30, 2001, the $3.2 million of nonperforming commercial business loans
was comprised of twenty-one loan relationships and $3.2 million of nonperforming
commercial real estate loans was comprised of seven loan relationships.
After the aforementioned commercial loan sale, nonperforming assets would
have been $4.3 million. There would have been three non-performing commercial
real estate loans totaling $1.8 million and eight commercial business loans
totaling $2.0 million. One of the remaining nonperforming commercial business
loan relationships would account for $1.4 million or 69.6% of the total
nonperforming commercial business loans. This loan has an U.S. Government
guarantee of the payment of principal and interest. Currently, this commercial
business is in bankruptcy, and management is working closely in the bankruptcy
proceedings to protect its interests. Measures continue to be taken to address
the remaining $600,000 nonperforming commercial business loans. However, these
loans continue to be monitored and reserved under the allowance for loan losses.
One of the three remaining commercial real estate nonperforming loan
relationships totaling $400,000 has been paid off. There was a $15,000 chargeoff
to the allowance for loan loss account for this loan. Management has written
down to estimated realized collateral values or has collateral supporting the
unreserved balances on the two remaining nonperforming commercial real estate
loans. Management recognizes actual workout of these loans may differ from these
estimates.
The following table sets forth the amounts and categories of the Savings
Bank's nonperforming assets at the dates indicated. The Savings Bank had no
loans classified as troubled debt restructurings during the periods indicated
below.
16
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2001 2000 2000
---- ---- ----
(DOLLARS IN THOUSANDS)
Non-accruing loans:
One-to-four family residential .. $ 78 $ 16 $ 85
Construction loans .............. -- -- --
Consumer loans .................. 170 318 244
Commercial real estate .......... 3,170 3,136 2,340
Commercial business loans ....... 3,161 2,221 702
------ ------ ------
Total nonperforming loans ..... 6,579 5,691 3,371
Real estate owned ............... 271 176 179
------ ------ ------
Total nonperforming assets .... $6,850 $5,867 $3,550
====== ====== ======
Total nonperforming loans as a
percentage of total loans ... 4.49% 3.63% 2.06%
====== ====== ======
Total nonperforming assets as a
percentage of total assets .. 3.46% 2.91% 1.69%
====== ====== ======
RESULTS OF OPERATIONS
GENERAL--The Corporation's net income for the quarter ended September 30,
2001 was $7,000 or $.01 per diluted share. The net income of $7,000 for the
third quarter 2001 was primarily attributable to $1.1 million in net interest
income and $214,000 in fees and service charges. This was partially offset by
$1.2 million in total other expenses. This compares to a net loss of $876,000
for the three months ended September 30, 2000. This net loss was due to a $1.9
million provision for losses on loans and $1.3 million in total other expenses.
These expenses for the three months ended September 30, 2000 were partially
offset by $1.5 million in net interest income and an income tax benefit of
$563,000.
Excluding a curtailment gain of $292,000, net of taxes, realized by
terminating the Bank's pension plan, net income was $47,000 or $.05 per diluted
share for the nine months ended September 30, 2001. The Bank expects to record a
settlement loss in the fourth quarter 2001 when the pension plan fulfills its
obligations. The net effect of the pension plan termination and settlement
should be a gain recorded in fiscal 2001. The $47,000 in net income, excluding
the curtailment gain realized by terminating the Bank's pension plan, net of
taxes, was attributable to $3.5 million in net interest income and $628,000 in
fees and service charges. This was partially offset by $3.9 million in total
other expenses. This compares to a net loss of $568,000 for the nine months
ended September 30, 2000. This net loss was due to a $2.4 million provision for
losses on loans and $3.7 million in total other expenses. These expenses for the
nine months ended September 30, 2000 were partially offset by $4.5 million in
net interest income, $678,000 in fees and service charges and an income tax
benefit of $375,000.
INTEREST INCOME--The Corporation reported interest income of $3.1 million
for the three months ended September 30, 2001, as compared to $3.8 million for
the three months ended September 30, 2000. The interest income decrease of
$647,000 or 17.1% for the quarter ended September 30, 2001, compared to the same
period in the prior year can be attributed to a $580,000 or 18.2% decrease in
interest and fees on loans. The decrease of $580,000 in interest and fees on
loans was the result of a decrease in the average yield earned on loans
receivable and a decrease in average loan balances. The average yield earned on
loans receivable, during the quarter ended September 30, 2001, was 7.03%
compared to 7.81% for the same period in 2000. Average loan balances for the
third quarter 2001 were $148.2 million compared to $163.3 million for the same
period in 2000.
17
The Corporation reported interest income of $10.0 million for the nine
months ended September 30, 2001, as compared to $11.2 million for the nine
months ended September 30, 2000. The interest income decrease of $1.2 million or
10.2% for the nine months ended September 30, 2001, compared to the same period
in the prior year can be attributed to a $973,000 or 10.5% decrease in interest
and fees on loans. The decrease of $973,000 in interest and fees on loans was
the result of a decrease in the average yield earned on loans receivable and a
decrease in average loan balances. The average yield earned on loans receivable,
during the quarter ended September 30, 2001, was 7.30% compared to 7.75% for the
same period in 2000. Average loan balances for the nine months ended September
30, 2001 were $151.7 million compared to $159.7 million for the same period in
2000.
INTEREST EXPENSE--Interest expense decreased $247,000 or 10.6% during the
three months ended September 30, 2001 as compared to the same period last year.
Average interest-bearing liabilities during the third quarter of 2001 were
$185.2 million compared to $193.0 million for the same period in 2000. The
weighted average interest rate on interest-bearing liabilities during the third
quarter of 2001 was 4.51% compared to 4.84% for the same period in 2000.
Interest expense decreased $105,000 or 1.6% during the nine months ended
September 30, 2001 as compared to the same period last year. This decrease was
due to a reduction in average interest-bearing liabilities. Average
interest-bearing liabilities during the nine months ended September 30, 2001 was
$185.9 million compared to $189.1 million for the same period in 2000.
PROVISION FOR LOAN LOSSES--During the three and nine months ended September
30, 2001, the Corporation recorded provisions for losses on loans of $30,000 and
$210,000, respectively, compared to $1.9 million and $2.4 million for the
comparable periods in 2000. The Corporation establishes a provision for loan
losses that is charged to operations. The allowance for loan losses is
maintained at a level that is deemed to be appropriate based upon a
comprehensive methodology that is to be updated on a monthly basis. This
methodology includes:
- A detailed review of all criticized and impaired loans is
performed to determine if any specific reserve allocations are
required on an individual loan basis. The specific reserve
established for these criticized and impaired loans is based
on analysis of the loan's performance, the related collateral
value, cash flow considerations and the financial capability
of any guarantor.
- The application of reserve allocations to all outstanding
loans and certain unfunded commitments is based upon review of
historical losses and qualitative factors, which include but
are not limited to, economic trends, delinquencies,
concentrations of credit, trends in loan volume, borrowers'
experience and depth of management, examination and audit
results, effects of any changes in lending policies and trends
in policy exceptions.
- The application of reserve allocations for all commercial and
commercial real estate loans are calculated by using a risk
rating system. All loans are assigned risk ratings based upon
an internal review. There are ten risk ratings, and each
rating has a corresponding reserve factor that is used to
calculate the required reserve.
- The maintenance of a general unallocated reserve occurs in
order to provide conservative positioning and protection
against unknown events or circumstances that have occurred,
but have not yet been identified by the Corporation through
its credit administration process. It must be emphasized that
a general unallocated reserve is prudent recognition of the
fact that reserve estimates, by definition, lack precision.
18
After completion of this process, management evaluates the adequacy of the
existing reserve and establishes the provision level for the next month.
When it is determined that the prospects for recovery of the principal of a
loan have significantly diminished, the loan is charged against the allowance
account; subsequent recoveries, if any, are credited to the allowance account.
In addition, nonperforming, delinquent loans greater than ninety days and
problem loans are to be reviewed monthly to determine potential losses.
Generally, consumer loans are considered losses when 180 days past due. The
Corporation's management is unable to determine in what loan category future
charge-offs and recoveries may occur. Therefore, the entire allowance for loan
losses is available to absorb future loan losses in any loan category. During
the quarter ended September 30, 2001, the Corporation charged off one commercial
loan totaling $25,000. During the nine months ended September 30, 2001, the
Corporation charged off thirteen consumer loans totaling $228,000, two
commercial business loan totaling $75,000 and one commercial real estate loan
totaling $25,000.
Although management utilizes its best judgment in providing for losses,
there can be no assurance that the Corporation will not have to increase its
provision for loan losses in the future as a result of commercial and consumer
loans, future changes in the economy or for other adverse reasons discovered
from the methodology described above. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Corporation's provision for loan losses and the carrying value of its
nonperforming assets based on their judgments from information available at the
time of their examination. The OTS last examined the Corporation as of June 30,
2001. The Corporation will continue its review of the commercial loan portfolio
for any further developments and the allowance for loan loss will be adjusted
accordingly.
The Corporation's management is unable to determine in what loan category
future charge-offs and recoveries may occur. The following schedule sets forth
the allocation of the allowance for loan losses among various categories. The
entire allowance for loan losses is available to absorb future loan losses in
any loan category.
SEPTEMBER 30, 2001 DECEMBER 31, 2000 SEPTEMBER 30, 2000
------------------ ----------------- ------------------
% OF % OF % OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
One-to-four family residential .... $ 167 69.50% $ 179 65.85% $ 160 63.70%
Construction ...................... 38 0.93% 29 0.99% 29 1.26%
Commercial business and
commercial real estate .......... 2,627 16.59% 2,876 20.47% 2,042 23.23%
Consumer:
Automobile, home equity, student,
share and other consumer ...... 72 12.98% 91 12.69% 90 11.81%
Allocation to general risk ...... 435 -- 212 -- 224 --
------ ------ ------ ------ ------ ------
Total ......................... $3,339 100.00% $3,387 100.00% $2,545 100.00%
====== ====== ====== ====== ====== ======
OTHER INCOME--Total other income decreased $23,000 and $51,000, excluding
net gains and losses on sales of investments, assets and foreclosed real estate,
for the three and nine months ended September 30, 2001, respectively, compared
to the same periods in 2000. These decreases were the result of lower fees and
service charges earned.
19
OTHER EXPENSES--Total other expenses decreased $31,000 or 2.5% for the
quarter ended September 30, 2001 and increased $137,000 or 3.7% for the nine
months ended September 30, 2001, excluding the pension plan curtailment gain of
$479,000, as compared to the same periods ended September 30, 2000. Major
factors for the increases in total other expenses for the nine months ended
September 30, 2001 were legal and professional fees associated with rectifying
asset quality concerns and regulatory matters. Legal and professional fees
increased by $218,000 for the nine months ended September 30, 2001, as compared
to the same periods in 2000.
INCOME TAXES -- The Corporation recorded an income tax expense of $6,000 and
$219,000 for the three and nine months ended September 30, 2001, respectively.
This compares to a $563,000 and $374,000 income tax benefit for the same periods
in the prior year. Such increases in income taxes were due to the Corporation
recognizing income before income taxes of $13,000 and $558,000 for the three and
nine months ended September 30, 2001, respectively, compared to a loss before
income taxes of $1.4 million and $943,000, respectively, for the same periods in
2000
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are dividends from the Savings
Bank, repayments by the ESOP of the loan it received from the Corporation, loan
repayments concerning loans advanced by the Corporation, interest and dividends
on debt and equity investments in other companies and interest earned on
deposits of the Corporation held at Savings Bank and short-term investments. The
primary sources of funds for the Savings Bank are deposits, advances from the
FHLB of Pittsburgh, repayments, prepayments and maturities of outstanding loans
and mortgage-backed securities, maturities of investment securities and other
short-term investments, and funds provided from operations. While scheduled loan
and mortgage-backed securities repayments and maturing investment securities and
short-term investments are relatively predictable sources of funds, deposit
flows, loan and mortgage-backed securities prepayments, and investment
securities with callable features are greatly influenced by the movement of
interest rates in general, economic conditions or competition. The Savings Bank
manages the pricing of its deposits to maintain a deposit balance deemed
appropriate and desirable by the Investment/Asset and Liability Committee
("ALCO"). In addition, the Savings Bank invests in short-term interest-earning
assets, which provide liquidity to meet lending requirements. The Savings Bank
has also utilized advances from the FHLB of Pittsburgh. At September 30, 2001,
the Savings Bank had $55.8 million borrowed from the FHLB of Pittsburgh pursuant
to various term loans with maturities of less than ten years.
During the nine months ended September 30, 2001, the Corporation's operating
activities provided net cash of approximately $513,000. The primary reasons for
the $513,000 net cash provided by operating activities during the nine months
ended September 30, 2001 were $339,000 in net income, a $287,000 decrease in
other assets, a $219,000 decrease in accrued interest receivable, $210,000 in
provision for loan losses and $201,000 in depreciation of premises and
equipment. This was partially offset by a $479,000 gain in curtailment of the
pension plan and a $316,000 decrease in accrued interest payable. During the
nine months ended September 30, 2000, the Corporation's operating activities
provided net cash of approximately $1.1 million. The primary reasons for the
$1.1 million net cash provided during the nine months ended September 30, 2000
were $2.4 million in provision for loan losses and $234,000 increase in accrued
interest payable which was partially offset by a $878,000 increase in deferred
income taxes and a net loss for the nine months ended September 30, 2000 of
$568,000.
Net cash provided by investing activities was $13.4 million for the nine
months ended September 30, 2001. The primary reason for the $13.4 million net
cash provided by investing activities was the Corporation received $10.3 million
in principal payments on existing loans in excess of new loans originated. Net
cash used by investing activities was $8.8 million for the nine months ended
September 30, 2000. The primary reason for the $8.8 million net cash used by
investing activities was the Corporation originated $11.6 million in new loans
in excess of principal payments received on existing loans. This was offset by
$1.7 million in sales of investment, mortgage backed and equity securities.
20
Net cash used by financing activities for the nine months ended September
30, 2001 was $4.2 million. This was attributable to decreases in net FHLB
advances of $10.5 million that was partially offset by increases in total
deposits of $6.9 million. Net cash provided by financing activities for the nine
months ended September 30, 2000, was $10.1 million. This was attributable to
increases in Money Market, Passbook Savings and Transaction accounts of $2.4
million and $7.6 million in net FHLB advances.
The Savings Bank is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of
1989 and regulations thereunder. Savings associations are required to maintain
tangible capital of 1.5%, core capital of 4.00% and risk-based capital of 8.00%.
At September 30, 2001, the Savings Bank's tangible, core, and risk-based capital
ratios amounted to 5.54%, 5.54%, and 11.91%, respectively, which exceeded
applicable requirements.
SALE OF WASHINGTON, PENNSYLVANIA BRANCH
The Bank completed the sale of its Washington in-store branch office to
Northwest Savings Bank in October 2001, subject to final adjustments. The office
was located within the Shop 'n Save supermarket at 125 West Beau Street in
Washington, Pennsylvania. Northwest Savings Bank retained the employees of this
office to provide continuity of customer service. The sale included $4.5 million
in deposits, as well as the fixed assets at such branch location. Prestige Bank
expects to record approximately $60,000 in pre-tax gains when the transaction
closes in the fourth quarter 2001. All deposits of such branch will continue to
be FDIC insured subject to FDIC rules and regulations. The sale follows the
Bank's determination that the Washington, Pennsylvania branch was outside of its
targeted geographic market. The Bank expects to save approximately $123,000
annually in compensation and benefits from the sale of this branch.
COMMERCIAL LOAN SALE
Subsequent to the close of the third quarter 2001, the Bank completed a
packaged commercial loan sale of approximately forty-nine loans to a third
party. The total face amount of the loans was $6.35 million of which $2.0
million had been charged-off prior to the sale. This sale will result in a $1.9
million reduction of the existing allowance for loan loss at September 30, 2001.
Net proceeds of the sale were $2.5 million. Non-performing assets were $6.9
million but would have been $4.3 million at September 30, 2001 had the sale
taken place prior to September 30, 2001. For additional non-performing asset
information, see the "Financial Condition" section of the Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
Bank will use the proceeds from the sale for reinvestment in bank deposits,
loans and investment securities to generate income to partially offset the lost
interest income from the loans sold.
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PRESTIGE BANCORP, INC.
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Bank is involved in any pending
legal proceedings other than nonmaterial legal proceedings
occurring in the ordinary course of business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRESTIGE BANCORP, INC.
Dated: November 14, 2001 By: /s/ Mark R. Schoen
------------------
Mark R. Schoen,
Chairman of the Board of Directors,
Chief Executive Officer and President
Dated: November 14, 2001 By: /s/ James M. Hein
-----------------------
James M. Hein,
Chief Financial Officer
23